Adjusting executive pay to suit current economics

WHAT strikes those struggling to put food on the table due to the COVID-19 pandemic the most is the yawning gap between the haves and have-nots.

As millions globally lost their jobs or had their salaries cut, some top executives in giant corporations are seeing their bank account balances ballooning like never before.

And we are not just talking about the values of the companies they control. Many executives like CEOs are taking home higher salaries compared with the pre-pandemic.

Considering the hardships suffered by most people due to the coronavirus outbreak, the pay packages of some executives seems counter-intuitive, if not bordering on the immoral.

Take the banking sector, for example. For months, many borrowers have pleaded for banks to automatically extend the loan moratorium first announced in March 2020.

With businesses shut and the movement control order (MCO) imposed, many businesses and individuals had problems servicing their loans, even after the restrictions were slowly eased.

The Government, which holds strategic stakes in most banks, refused, saying that banks would be hit hard if the moratoriums were automatically extended to all loans.

But barely a few months later, lo and behold, top executives in at least three Malaysian banks were found to have taken home over 10% rises in pay packages in 2020 compared with the previous year, based on public disclosures.

While reducing, or just maintaining the salaries of the CEOs would have minimal impact on the banks’ financial position in the overall scheme of things, the gesture could help mollify the distress from borrowers as well as help the institutions score brownie points among its employees, especially those who had their salaries cut.

In the corporate pecking order, top executives like CEOs would be the least affected by the pandemic’s knock-on effect on the economy. Being seen standing in solidarity with its employees or other stakeholders could go a long way in helping the executives foster long-term trust.

Kudos to top executives who had taken pay cuts, including foregoing bonuses and stock options during such turbulent times. Some companies too have come up with creative ways to cushion the impact of the slowdown, such as offering stock options to employees who agree to take pay cuts.

This arrangement can be a win-win, with the companies enjoying better cash flow in the interim, while employees are likely to gain from the stocks when the economy recovers.

As the economy sputters along with light now at the end of the tunnel, top executives need to be mindful of how they are viewed by their staff and clientele.

If they take home obscene pay during hard times, they are perceived as not in it with their stakeholders. And when the good times return, these stakeholders too, can also choose not to stand with these top executives. – April 14, 2021


Dominic Tham is a FocusM editorial contributor.

The views expressed here are solely of the author and do not necessarily reflex those of Focus Malaysia

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